93 N.Y.2d 209 (1999).March 25, 1999

1 No. 44

[99 NY Int. 0035]
Decided March 25, 1999

This opinion is uncorrected and subject to revision before publication in the New York Reports. Marc S. Oxman, for appellant. G. William Scott for United States Secretary of Labor, amicus curiae. Bhalinder L. Rikhye, for respondent. Eliot Spitzer, Attorney General of the State of New York, amicus curiae.

KAYE, CHIEF JUDGE:

The novel question presented by this appeal is whether
the Employee Retirement Income Security Act (ERISA) preempts
plaintiff's medical malpractice, breach of contract and breach offiduciary duty claims against a primary care physician who
allegedly delayed in submitting a specialist's referral form for
approval by a health maintenance organization (HMO) governed by
ERISA. Concluding that ERISA does not preempt plaintiff's
claims, we reverse the Appellate Division's dismissal order and
reinstate the complaint against the doctor.

In January 1992, plaintiff's husband, Glenn Nealy, then
37 years old, was diagnosed with coronary arteriosclerosis and a
coronary artery lesion. As a result, Mr. Nealy took disability
leave from his job at Photocircuits Corporation and was treated
for his condition by a cardiologist, Dr. Stephen Green. His
treatment, which included an angioplasty performed by Dr. Green
in March 1992, was in large part covered by Blue
Cross/Massachusetts Mutual, the carrier selected by Photocircuits
to provide employee medical insurance. Around the time of Mr.
Nealy's angioplasty, Photocircuits replaced its carrier with a
choice of three HMOs, including US Healthcare, and informed its
employees that coverage would become effective April 1, 1992.
Mr. Nealy promptly enrolled in the US Healthcare Versatile Plus
HMO, which allowed its members to see nonparticipating
physicians, and paid his first monthly premium.

On April 2, and again on April 3, Mr. Nealy visited the
offices of defendant, Dr. Ralph Yung, whom he had selected as hisprimary care provider under the US Healthcare HMO.
[n.1]
He
experienced renewed chest pain and also required followup care
as a result of the angioplasty. On his first visit, Mr. Nealy
was denied an appointment because he had not yet received a US
Healthcare identification number. The next day, he spoke with a
US Healthcare representative who told him that a copy of his
enrollment form could be presented in lieu of an identification
number, and he made a second attempt to visit Dr. Yung. Again he
was turned awaythis time because his enrollment form bore the
wrong primary physician number.

On April 10, 1992having received his US Healthcare
identification card the previous dayMr. Nealy was examined by
Dr. Yung. During that visit, Dr. Yung took a patient history
that noted a history of angina and angioplasty, performed a
routine newpatient physical examination, and renewed all the
medications that had been prescribed by Dr. Green. At Dr. Yung's
request, Mr. Nealy returned on April 13 to provide blood and
urine samples for laboratory analysis. When Dr. Yung informed
him during one or both of these visits that he should see a
cardiologist, Mr. Nealy requested a referral to Dr. Green, who
was not a participating US Healthcare provider. Dr. Yung
allegedly assured his patient that he would submit a request toUS Healthcare to approve an outofplan referral and do what he
could to secure approval of the request. It was not until
approximately April 20, however, that Dr. Yung completed a nonparticipating provider request form and submitted it for approval
to US Healthcare.
[n.2]

On May 4th, Mr. Nealy received a copy of a letter from
US Healthcare addressed to Dr. Yung denying the request for a
referral to Dr. Green. The reason given was that US Healthcare
had a participating provider in the area. After the referral to
Dr. Green was denied, Mr. Nealy decided to accept a referral to
Dr. Carl Spivak, a participating US Healthcare cardiologist. He
obtained the referral to Dr. Spivak on May 18 and promptly made
an appointment for the next day. Tragically, however, on May 18
Mr. Nealy suffered a massive myocardial infarction and died.

Seeking to recover damages for her husband's death,
plaintiff commenced this action in Supreme Court asserting breach
of contract, breach of fiduciary duty, wrongful death, negligence
and other claims against defendants Dr. Yung, Dr. Richard H.Bernstein (Vice President and Director of US Healthcare), US
Healthcare and two subsidiaries. Plaintiff also asserted medical
malpractice claims against Dr. Yung and Dr. Bernstein. Dr.
Bernstein and US Healthcare successfully sought removal of the
case to Federal court, where the claims were dismissed on the
ground that they were preempted by ERISA (844 F Supp 966 [SDNY]),
and no appeal was taken to determine the correctness of that
decision. Because Dr. Yungwho had not yet been served with the
summons and complaintdid not take part in the removal motion,
the Federal court remanded the case against him, as the sole
remaining defendant, to Supreme Court.

After service of process and discovery, Dr. Yung moved
for summary judgment seeking dismissal of the complaint, alleging
that ERISA preempted plaintiff's claims against him as well.
Supreme Court denied the motion. The Appellate Division,
however, reversed and dismissed the complaint, concluding that
ERISA preempted plaintiff's claims. We disagree and now
reinstate plaintiff's complaint against Dr. Yung.

Discussion

Concerned with employee pension plan abuses and
mismanagement, Congress in 1974 enacted ERISA, a comprehensive
statute "designed to promote the interests of employees and their
beneficiaries in employee benefit plans" ( Aetna Life Ins v
Borges, 869 F2d 142, 144 [2d Cir], cert. denied493 US 811; see also, 29 USC §§ 1001 1001a, 1001b). ERISA subjects employee
benefit plans to participation, funding and vesting requirements
as well as rules regarding reporting, disclosure and fiduciary
responsibility (29 USC §§ 1021 et seq.; see also, Shaw v Delta
Air Lines, 463 US 85, 9091). By imposing these requirements,
Congress sought "to insure against the possibility that the
employee's expectation of * * * benefit[s] would be defeated
through poor management by the plan administrator" ( Massachusetts
v Morash, 490 US 107, 115). In aid of its goal of protecting
plan participants and their beneficiaries, ERISA facilitates the
development of a uniform national law governing employee benefit
plans, and a standard system to guide the processing of claims
and disbursement of benefits ( New York State Conference of Blue
Cross & Blue Shield Plans v Travelers Ins Co, 514 US 645, 656657
[ Travelers]).

ERISA's preemption provision is central to achievement
of its statutory purposes. The provision reads that ERISA "shall
supersede any and all State laws insofar as they * * * relate to
any employee benefit plan" covered by ERISA, and it applies to
both State statutes and common law (§ 514[a], 29 USC § 1144[a];
id., at § 514[c][1], 29 USC § 1144[c][1]; Pilot Life Ins Co v
Dedeaux, 481 US 41, 46). Although the language of the preemption
clause is "deliberately expansive," there is a presumption that
Congress does not intend to supplant State law, and a claimtraditionally within the domain of State law will not be
superseded by Federal law "unless that was the clear and manifest
purpose of Congress" ( Travelers, 514 US, at 654655).

The issue before us is whether ERISA's preemption
clause bars plaintiff's medical malpractice, breach of contract
and breach of fiduciary duty claims against her husband's primary
care physician, Dr. Yung. All of these claims fall within the
traditional domain of State regulation. Dr. Yung, therefore,
bears the "considerable burden" of overcoming the presumption
that Congress did not intend to preempt them ( DeBuono v NYSAILA
Medical and Clinical Svcs Fund, 117 SCt 1747, 1752). In an
attempt to surmount that formidable hurdle, Dr. Yung alleges that
ERISA preempts these claims because they "relate to" the
administration of the US Healthcare HMO. The Appellate Division
agreed, holding that he was protected by ERISA preemption because
he had acted in a "purely administrative" capacity, and not as an
"actual provider of medical care" (__ AD2d __, __). We conclude
that plaintiff's claims against Dr. Yung do not "relate to" an
employee benefit plan.

The simple statutory words "relate to" have been the
subject of significant scholarly comment and litigation,
including considerable attention from the United States Supreme
Court ( see, DeBuono, supra, 117 SCt, at 1749, n.1; see also,
Peter D. Jacobson and Scott D. Pomfret, Form, Function, andManaged Care Torts: Achieving Fairness and Equity in ERISA
Jurisprudence, 35 Hous L Rev 985 [1998]; Catherine L. Fisk, The
Last Article About the Language of ERISA Preemption?: A Case
Study of the Failure of Textualism, 33 Harv J on Legis 35 [1996];
Larry J. Pittman, ERISA's Preemption Clause and the Health Care
Industry: An Abdication of Judicial LawCreating Authority, 46
Fla L Rev 355 [1994]). On the one hand, virtually any State law
may be said to "relate to" an employee benefit plan, for
"universally, relations stop nowhere" ( Travelers, supra, 514 US,
at 655). On the other hand, application of the preemption clause
to "the furthest stretch of its indeterminancy" would render
Congress' words of limitation a "mere sham" and nullify the
presumption against preemption ( id.). Plainly, there is tension
between the "deliberately expansive" language of the preemption
clausewhich, applied literally, would operate to shield benefit
plansand ERISA's goal of protecting employees from abuses at
the hands of such entities.

After many years of broadly interpreting ERISA's
preemption clause, in 1995 the United States Supreme Court
adopted a more pragmatic approach, noting that its prior efforts
to define "relate to" did not always afford "much help drawing
the line" ( Travelers, 514 US, at 655656). Whereas the Court had
previously explained that a law "relates to" an employee benefit
plan if it has a connection with or makes reference to such aplan, in Travelers the Court acknowledged that even that
definition of the phrase failed to provide adequate guidance
( id., at 656). Thus, the Court concluded, in determining whether
a State law relates to an employee benefit plan, it is often
necessary to "go beyond the unhelpful text and the frustrating
difficulty of defining its key term, and look instead to the
objectives of the ERISA statute as a guide to the scope of the
state law that Congress understood would survive" ( Travelers, 514
US, at 656; see also, DeBuono, supra, 117 SCt, at 1751 [where
there is no clear "connection with or reference to" an ERISA
benefit plan, consideration must be given to the objectives of
ERISA to determine whether the presumption against preemption has
been overcome]).

In Travelers itself, the Supreme Court concluded that a
State statute imposing surcharges on hospital bills paid by
certain employee benefit plans, but exempting Blue Cross/Blue
Shield plans, was not preempted by ERISA. Arguing for
preemption, the commercial insurers asserted that the surcharges
had an indirect economic effect on choices made by insurance
buyers, including ERISA plans, and as such, the State statute had
a "connection with" those plans. The Supreme Court, however,
held that the indirect economic influence of the surcharges did
not interfere with the congressional goal of uniform standards of
plan administration. The statute did not "bind planadministrators to any particular choice and thus function as a
regulation of an ERISA plan itself," nor did it "preclude uniform
administrative practice or the provision of a uniform interstate
benefit package" (514 US, at 659660). The effect of the law
bore only on "the costs of benefits and the relative costs of
competing insurance to provide them," and the law was therefore
not preempted by ERISA ( id., at 660; see also, DeBuono, supra,
117 SCt, at 175152; Boggs v Boggs, 117 SCt 1754, 1760;
California Div of Labor Standards Enforcement v Dillingham
Constr, N A, Inc., 117 SCt 832, 841842).

Here, plaintiff alleges that Dr. Yung, as a direct
provider of medical services, violated the duties and standard of
care owed to his patient by improperly assessing the nature and
extent of his condition and by failing to take reasonable steps
to provide for his timely treatment by a specialist. Viewed
pragmatically, those claims are not preempted by ERISA.
Plaintiff's allegations of negligent medical care do not "relate
to" the administration of an ERISA plan
[n.3]
merely because theyrefer to Dr. Yung's delay in submitting the US Healthcare form
seeking a referral to Dr. Green. Plaintiff does not allege that
Dr. Yung is responsible for delay caused by US Healthcare's
decisionmaking process with respect to coverage or benefits.
Her claim against Dr. Yung is that he failed to take timely
action to treat her husband.

Provision of medical treatment under an HMO or other
managed care plan often requires reference to that plan's
administrative procedures or requirements. In this case, for
example, under the terms of the US Healthcare HMO plan, Mr.
Nealy's primary care physician was required to complete and
submit a referral form in order to obtain treatment by a
specialist for his patient. That alone, however, does not
transform Dr. Yung into an ERISA plan administrator, or
plaintiff's State law action charging violations of a physician's
duty of care into claims that "relate to" ERISA plan
administration. While plaintiff's claims make reference to US
Healthcare's administrative framework, any effect those claims
may have on an employee benefit plan is "too tenuous, remote or
peripheral" to warrant a finding that they "relate to" such aplan ( Shaw, supra, 463 US, at 100 n.21).

Moreover, considering the objectives of the ERISA
statute, it is clear that Congress did not intend to preempt
claims such as those now before us. Plaintiff's claims do not
bind an employee plan to any particular choice of benefits, do
not dictate the administration of such a plan and do not
interfere with a uniform administrative scheme ( Travelers, supra,
514 US, at 659660; Boggs, supra, 117 SCt, at 1760; Dillingham,
supra, 117 SCt, at 841842; DeBuono, supra, 117 SCt, at 1752).
Indeed, plaintiff does not challenge any administrative
determination relating to an employee benefit plan or the extent
of rights and benefits under such a plan. In short, there is
nothing about plaintiff's claims that "conflicts with the
provisions of ERISA or operates to frustrate its [objectives]"
( Boggs, supra, 117 SCt, at 1760). To the contrary, plaintiff's
claims are consistent with ERISA's "principal object": the
protection of plan participants and beneficiaries ( id., at 1762).

Finally, the Appellate Division would have dismissed
plaintiff's complaint on the independent ground that she failed
to demonstrate that any deviation from professional standards was
a proximate cause of Mr. Nealy's demise. At this juncture in the
litigation, however, we cannot agree with that conclusion as a
matter of law.

Accordingly, the Appellate Division order should bereversed, with costs, and the order of Supreme Court reinstated.

* * * * * * * * * * * * * * * *

*

Order reversed, with costs, and order of Supreme Court, Bronx
County, reinstated. Opinion by Chief Judge Kaye. Judges
Bellacosa, Smith, Levine, Ciparick, Wesley and Rosenblatt concur.

Decided March 25, 1999

Notes

1
Dr. Yung disputes plaintiff's allegation that Mr. Nealy
visited his offices on April 2 and 3, admitting only that he
first saw Mr. Nealy on or about April 10.

2
The parties dispute whether the nonparticipating
referral forminstead of a "Versatile" formwas submitted to US
Healthcare at Mr. Nealy's request or the result of Dr. Yung's
error. A "Versatile" referral would have allowed treatment by a
nonparticipating doctor but required Mr. Nealy to pay a $250
deductible. Plaintiff maintains that Mr. Nealy never expressed a
desire to avoid payment of the deductible and was motivated only
by a desire to see his cardiologist as soon as possible. Dr.
Yung claims that Mr. Nealy did not want to pay the deductible,
which is why the nonparticipating referral form was submitted.

3
We leave for another day the issue whether the US
Healthcare HMO was even a "plan" within the meaning of the ERISA
preemption provision. The Secretary of Labor, charged with
interpreting and enforcing the provisions of ERISA, in a brief
supporting plaintiff's position, notes that the US Healthcare HMO
at issue here is not an ERISA plan at all, but rather a service
provider to the ERISA plan established by Photocircuits, Inc.
ERISA defines an "employee welfare plan" as "any plan, fund or
program * * * established or maintained by an employer * * * for
the purpose of providing for its participants and beneficiaries,
through the purchase of insurance or otherwise * * * medical,surgical, or hospital care or benefits" (29 USC § 1002[1]).
Commentators have observed that there is some "confusion" as to
whether this "tautological" definition encompasses HMOs and other
managed care organizations ( see, Jacobson and Pomfret, supra, at
10201022). The issue was not raised by the parties and, given
the result we reach, would in any event be immaterial.